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For example - a non-profit is in need of a website. Can a company say "StackExchange" donate to a non-profit company say $5,000 in agreement that they will spend that on paying a designer for a new website? And most importantly is this donation still tax deductible?

Thanks a bunch in advance, and sorry if this isnt the proper section. This seemed like the right place.

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Donations need to be with no strings attached. In this case, you make the cash donation, a deduction, and then they pay you, in taxable income. It's a wash. Why not just give them the service for free? Otherwise this is just money going back and forth.

  • Well see in a perfect world giving the service for free would work but there is more demand than supply. And if a non-profit can't find a designer / developer to work on their site pro-bono, then they're stuck wasting their own time building something sub-standard or paying someone to do it for them. And if they're going to pay someone to do it for them, why not allow a company who could benefit from the exposure front the costs? I understand it's kind of a grey situation but my intentions are good, this wasn't a seek for backdooring the system. – Gk3Biz Dec 23 '13 at 5:02
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    Sorry if my answer wasn't clear. Donate $XXX to charity. Write it off as a deduction. They hire you and pay you $XXX as a fee. Claim the income. It's a wash. What exactly are you trying to accomplish? Your time and expertise can't be taken as a deduction. – JoeTaxpayer Dec 23 '13 at 5:34
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    @Gk3Biz the answer is simple: no. If you put conditions - it is no longer a tax-deductible charitable contribution. – littleadv Dec 23 '13 at 9:46
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    @BrenBarn - I donate, and for the homeless vets, can designate "training" or "shelter cost". For the School for the blind, I can similarly direct to "new braille machine", etc. That's not what the issue is. It's the Quid Pro Quo that's not permitted. I can't donate to a shelter and say "give my cousin a room." And I imagine that the IRS can discount a deduction if I donate $1M to a school to name a building. There's value in having "JoeTaxpayer Wing" at my university. – JoeTaxpayer Dec 23 '13 at 22:43
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    @BrenBarn I believe naming a building that the university is raising money for after them is not considered "strings attached", but forcing the university to build a building using a specific builder - definitely is. – littleadv Dec 23 '13 at 22:52
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When you say "donate", it usually assumes charitable donation with, in this context, tax benefit. That is not what happens in your scenario.

Giving someone money with the requirement of that someone to spend that money at your shop is not donation. It is a grant. You can do that, but you won't be able to deduct this as charitable donation, but the money paid to you back would be taxable income to you.

I respectfully disagree with Joe that its a wash. It is not. You give them money that you cannot deduct as an expense (as it is not business expense) or donation (as strings are attached). But you do give them the money, it is no longer yours. When they use the money to pay you back - that same money becomes your taxable income.

End result: you provide service, and you're the one paying (taxes) for it. Why would you do that?

  • No problem! I started with "no conditions," which you agree with, but go on to show how that's not even the issue. Either way, we agree the answer is No. – JoeTaxpayer Dec 23 '13 at 13:06
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Can a company say "StackExchange" donate to a non-profit company say $5,000 in agreement that they will spend that on paying a designer for a new website? And most importantly is this donation still tax deductible?

A non-profit would have to typically create a bucket for IT Services or Website design. As long as "StackExchange" specify they employ a profession service to get it done, there would be no issue. If "StackExchange" were to specify an individula/company it would be an issue.

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People put conditions on donations all the time. They donate to the Red Cross for a specific disaster. The donate money to a church for the building fund. They donate money to a hospital to buy a new x-ray machine. They donate money to the scouts for a new dining hall.

It is possible to donate money to a non-profit for a specific purpose. If the non-profit doesn't want to accept the money with those strings they can refuse. Generally these specific projects are initiated by the non-profit. But there is no requirement that the idea originate with the non-profit.

It is also up to the non-profit and their legal advisers regarding how strictly they view those strings. If you donate money for web design and they don't spend it all, can they pay net years hosting bill with the money, or must they hold it for a few years for when they need a designer again?

If the company wants to provide the service, they can structure the project to pay their employees for their time. They pay employees for $100 of labor while deigning the website. The pay and benefits reduce profit thus lowering taxes.

Donating money to the non-profit to be given back to the company doesn't seem to be the best way to structure transaction. At best it is a wash.

Donating money to a charity and then directing exactly which contractor will perform the service starts to look like money laundering, and most charities will get wary.

  • that is incorrect. When you donate to a specific disaster relief or a church building fund - you're not putting conditions, you're donating for a cause the charity came up with. You're making a choice among what's available, not conditioning your donation on something you desire. – littleadv Dec 23 '13 at 22:51
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    They can refuse the money if they don't want it with those strings. They also can negotiate the strings. But if they agree with you, then you can deduct it, especially if you don't pick the contractor, it i deductible. Many a non-profit has competed for funding, when a rich person starts waving around money. I am sure that some renovation projects are only started because of donor approaches the charity. – mhoran_psprep Dec 24 '13 at 0:39
  • @mhoran_psprep: What you are saying is what happens in practise. However in the true sense of law, Quid Pro Quo is not allowed. With some large donations there are some informal agreements ... if its established it formal, the law would not allow it. A generic direction on usage of Charity funds as pointed by Joe in comments to his answers is fine. At times if there is no such category, a large donor can influence and create such a category. Ask specific way of spending by employing "X" person or company would be an issue. – Dheer Dec 24 '13 at 4:37
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    I think my answer covers all the options: no strings, some strings, very specific strings. – mhoran_psprep Dec 24 '13 at 11:07
  • What I disagreed with was the first sentence. – littleadv Dec 24 '13 at 20:53

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